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Millions Labor in Pakistan's Informal Economy

The World Bank says that in Pakistan, roughly 70 percent work in the so-called informal sector, a part of the economy that is unregulated and untaxed.

On a good day, Jamil Hassan will have some 15 customers, and earn an average of $8 a day.

Hassan is one of the millions working in Pakistan's informal economy, the mainstay for the country's vast poor. He never went to school. Cutting hair is all he knows.

"I've been doing this all my life," he said. "My father and grandfather did it before me, so this is what I do."

About 40 percent of all workers in Pakistan have no education. Hassan says illiterate people like him will never make enough to be able to save money.

Economist Ali Kamal says the informal economy can be seen as helping the country's overall economy.

"It absorbs a labor who is otherwise unemployed, it provides services at a cheaper cost and cheaper price to the general public, and it complements the formal sector," he said.

Mohammad Naeem works in a modest seasonal wheat mill, when Pakistan's constant power cuts don't grind work to a halt. Naeem says he would like to have his own business. But he doesn't believe in bank loans or in savings.

"I feel that people should not take loans, not owe money," he said. "That is very important. You should only use what you earn."

Kamal says millions of workers like Naeem and Hassan don't pay taxes, meaning less money for an already cash-strapped state.

"If we collect sales tax from all those informal sectors, it may account for four to five percent of GDP, and if we collect four to five percent GDP in sales tax from those informal activities, then we don't have any budget deficit anymore," he said.

But as of now, the informal sector is providing cheaper goods, services and labor to the formal sector. Analysts say Pakistan would have to reform its entire economic structure to change the situation
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    Sharon Behn

    Sharon Behn is a foreign correspondent working out of Voice of America’s headquarters in Washington D.C  Her current beat focuses on political, security and humanitarian developments in Iraq, Syria and Turkey. Follow Sharon on Twitter and on Facebook.